MAKING APRIL 15TH YOUR FAVORITE DAY
ownership, like partnerships and S-corporations, have their business year end at the same time as individuals do: December 31, or the end of the calendar year. However, C-corporations can choose when their year ends. This could amount to a large difference as far as taxes are concerned. “Incorporation” doesn’t mean a huge building with hun- dreds of employees, with you at the helm of a multinational enterprise. A corporation is an entity without a soul, a few legal documents that reside in a file folder at your attorney’s office. But should you incor- porate your business? Can you even consider this as an option?
The answer to the second question is almost always yes. Although there are associated costs with incorporating, incorporat- ing your business may be the best option from a tax standpoint. (Though you may find that your business is better suited to another form of ownership.) You just have to follow the rules that go along with it. But what if you work for someone else? Can you still incor- porate? The answer is still yes, as long as you have income other than your employment income. For example, if you own some rental prop- erty and derive an income from that property that is separate from your work income, then it may be in your best interests to incorporate your side business of owning and running the rental property.
Business owners are allowed to pay their expenses before they pay their taxes. This is something that employees aren’t allowed to do. Look at your most current paycheck stub. What is the first thing that comes out of your pay? If you invest in your company’s retire- ment plan, that does. Otherwise, taxes come out first. And by taxes, I’m including federal, state, local, and Social Security taxes (FICA). Then the rest of the money goes to you, and you try to use it in the wisest way possible. With business entities, it earns as much as it can, spends as much as it can, and then is taxed on the rest. In this man- ner, business entities, such as corporations, are probably the biggest tax loophole left! By owning your own corporation, or being self- employed, even everyday things, such as car payments and gas for your vehicles can become business expenses. You just have to use your pretax dollars from your business for these things.
An important advantage to incorporating is to protect your per- sonal assets. What if one of your tenants from your rental properties